In early 2020, Wuhan was put on pause, and China was slowed down. The sudden outbreak of COVID-19 profoundly impacted society and the economy. As part of industry, the polyurethane sector has also been affected and wounded by this unexpected pandemic, which has severely disrupted social and economic life.

Impact on production

To effectively prevent the spread of the epidemic, the national government and many provinces and municipalities have issued notices delaying the resumption of work for enterprises. Generally, local requirements stipulate that businesses may not resume operations before 24:00 on February 9; Hubei Province mandates that all types of enterprises wait until after 24:00 on February 13, while certain areas in Guangdong Province have set a post-March 1 restart date. Bulk raw materials such as MDI, TDI, and polyether are produced using continuous industrial-scale facilities. Some plants were scheduled to shut down before the Spring Festival and restart in early February; however, due to the epidemic, their restart has been postponed. Meanwhile, operating units that had maintained normal production have reduced loads because the outbreak has disrupted product transportation and weakened downstream demand.

Downstream polyurethane products, including flexible foam, rigid foam, shoe soles, dispersions, and CASE materials, are produced using batch processes. Under normal circumstances, production would halt during the Spring Festival holiday; however, due to epidemic prevention measures, the shutdown period will be longer than in previous years, and the timing of resumption remains uncertain.

The polyurethane industry comprises a large number of companies; a small number of major downstream manufacturers source raw materials directly from producers, while more than 80% of small and medium-sized enterprises procure their inputs through agents and traders. Normal inventory levels for raw materials typically last one to two weeks. Following the resumption of operations, companies will face new procurement and logistics challenges. With current transportation bottlenecks and rising freight costs, delays in replenishing raw material stocks after restarts could lead to critical safety stock shortages and persistently low operating rates.

Impact on downstream markets

From 2018 to 2019, the real estate market slowed, and substantial production capacity for sofas, mattresses, and similar products shifted to Southeast Asia, resulting in subdued demand in China’s upholstered furniture sector. According to data from Tiantian Chemical Network, polyurethane flexible foam consumption by the upholstered furniture industry reached a record high of 1.35 million tons in 2018; however, total consumption fell to 1.30 million tons in 2019, marking a decline. This year, the relocation of production capacity is expected to continue. With shopping malls closed due to the pandemic and reduced consumer outings for purchases, demand for polyurethane flexible foam from the upholstered furniture sector will likely decline further compared with 2019 levels. On the other hand, production capacity relocated to Southeast Asia remains unaffected by COVID‑19, and exports from Southeast Asia to Europe and North America are proceeding as usual, which bodes well for multinational upholstered furniture manufacturers and flexible foam producers.

Automobiles are high‑priced consumer goods. The pandemic has brought many industries to a standstill, causing daily losses for business owners and income reductions for ordinary wage earners. This will inevitably lead to a decline in automobile consumption. In 2020, both automobile production and sales may fall slightly compared with 2019, resulting in a corresponding decrease in the demand for polyurethane used in vehicles.

Chinese manufacturers of footwear materials and apparel supply not only the domestic market of 1.4 billion people but also export substantial volumes overseas. The period just before the Lunar New Year at the end of January represents the peak sales season for shoes and clothing. At that time, with the exception of the Wuhan region, epidemic prevention measures had yet to be implemented nationwide, so sales remained unaffected. After the Spring Festival, shopping malls across the country delayed reopening, and during the holiday golden week, consumers were unable to go out to spend, causing footwear and apparel sales to virtually drop to zero. On the export front, on January 30, the WHO declared the COVID‑19 outbreak a Public Health Emergency of International Concern. In addition to WHO recommendations, some countries imposed measures such as suspending or reducing flights to and from China and halting visa issuance. As a result, exporters faced reductions or postponements in foreign orders. Accordingly, domestic demand for raw rubber latex and slurry used in shoe soles essentially ground to a halt. A manufacturer of shoe sole latex and slurry in Shandong stated that it has no plans to resume operations in February, and whether it will restart in March depends on the pandemic situation and market conditions. Meanwhile, spandex, an elastic fiber, is used in medical applications such as mask ear loops and protective gowns. With the sharp surge in demand for medical protective supplies, spandex producers are operating at full capacity. As workers gradually return to their posts, the overall operating rate of spandex plants is expected to rise further.

Impact on prices

Due to transportation disruptions and downstream manufacturers remaining shut, market activity is sluggish. Middlemen are mostly working from home, posting only sporadic offers at prices largely unchanged from pre‑Spring Festival levels.

China exports certain volumes of MDI, TDI, and PPG, particularly PPG. In 2019, annual PPG exports approached 600,000 tons. Currently, with Chinese PPG producers operating at low capacity utilization and transportation disruptions, China’s PPG exports have declined sharply. According to market sources, polyether supplies in Southeast Asia are currently tight due to the absence of Chinese exports, leading to price increases.